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INCOME
TRACKS
Investors have traditionally looked to actively managed funds for
income, but Adam Lewis says a smart beta approach could deliver
similar results at a much lower price
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hen it comes to
hunting for income
from equities, there is
a natural perception
that the best way to
obtain it is from a portfolio of
actively managed funds. This
would traditionally mean the IA
UK Equity Income sector, or going
further-a-field and investing in
more globally orientated
portfolios, such as those with
significant exposure to Europe,
the US or Asia.
One avenue investors may not
have thought of going down is
the passive route. While index
tracking funds are generally
considered cheaper alternatives
for gaining access to the market,
they are not widely known for
their income-producing prowess.
Hargreaves Lansdown’s head
of passives Adam Laird says
the perception that tracker
funds aren’t suitable for income
investors is based on two myths:
that these products do not yield
anything and that only active
managers can build income
indices.
“Both of these perceptions are
false,” said Laird. “When we quote
the FTSE 100 as standing at 6,000,
this does not factor in dividends,
but index tracker funds do receive
income. Also, investors now have
a number of options available to
them as the index investing space
has evolved over the past decade.”
For anyone considering the
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“There is a
risk there will
be dividend
cuts, but on
the other hand
the active
managers do
not always get
it right”
passive route, Laird says there are
two options: using plain vanilla
index trackers or ETFs, or taking
more of a hybrid a